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Assignment v. Merger (1996)

Introduction

Take a look at your lease document. It probably contains the standard language that a lessee may not "assign" the lease to a third party. Remembering that an assignment is different from a sublease in that, under an assignment, the lessee is relieved of all liabilities and the lessor may look only to the assignee/new lessee, it is obvious why this is so important. What about an "assignment by operation of law"? When a lessee is merged into another corporation or subsidiary lessee is dissolved and its assets transferred to its parent company, an assignment takes place.

Under a 1915 U. S. Supreme Court case, such an assignment is probably NOT covered by the no assignment clause in the lease. Central Trust Co. of Illinois v. Chicago Auditorium Association, 240 U.S. 581 (1915) applied to an assignment in a bankruptcy transaction and was decided in the days when federal courts delved into matters of state law. Most states, however, follow the same logic.

This means that a lessee may be merged into, or otherwise combined with, a company with a much lower net worth, engaged in a different sort of business (hauling of hazard materials, for instance) or otherwise unattractive to the lessor. Take another look at your lease: Is there an express default for any merger, dissolution, consolidation or other change of the lessee's business?